AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2018 (3) TMI 725
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....ue in the memo of appeal filed with the Income-Tax Appellate Tribunal, Mumbai (hereinafter called "the tribunal") read as under:- "(i) "On the facts and in the circumstances of the case and in law, whether the learned CIT(A) was justified in allowing the carry forward of losses of Rs. 5,32,99,080/- for A. Y. 2007-08 to A. Y. 2010-11 even though there is a clear change in the shareholding pattern of the assessee company, thereby attracting by provisions of Section 79 of the I. T. Act, 1961, which prohibits the carry-forward and set-off of losses on account of changing shareholding pattern of a company". (ii) "Without prejudice to the above and on the facts and in the circumstances of the case and in law, whether the learned CIT(A) was justified in holding that the provisions of section 79 will not apply to the assessee company as it is deemed to be a public limited company on account of it being a subsidiary of HDFC Ltd, which is a public limited company even though the assessee company is not a wholly owned subsidiary of HDFC Ltd, a public limited company and thereby it does not satisfy the express provision stated in Section 2(18)(b). " The appellant prays that the or....
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....ith the tribunal by way of ground no. 3 which is a ground raised for the first time before the tribunal seeking carry forward of brought forward loss relating to AY 2007-08 to 2009-10 as the provisions of Section 79 of the 1961 Act has no application to the assessee. It was submitted that the said loss was not claimed in the return of income filed with the Revenue but since it is purely a legal ground which does not requires investigation into new facts and the facts as are emanating from the orders of the authorities below are sufficient to adjudicate this ground no. 3 . Thus, prayer was made to admit the said additional grounds of appeal being ground no. 3 raised for the first time before the tribunal and adjudicate the same on merits. The Ld. DR objected to the condonation of delay application filed by the assessee seeking condonation of delay of 17 days in filing CO late beyond time stipulated u/s 253(4) of the 1961 Act and prayed that CO may be dismissed . Similar prayer was made for rejecting the ground no. 3 being raised for the first time before the tribunal. After carefully considering the submissions of both the parties , perusing the material on record and keeping in vie....
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....f income filed with the Revenue while the same found mentioned in the AIR data base of the Revenue. The AO had observed from AIR data base i. e. 26AS , that the assessee had an undisclosed income-tax deducted at source (TDS) of Rs. 646. 31 which was deducted u/s 194H @10% on income of Rs. 6461/- The AO added the same to the income of the assessee vide assessment order dated 02-03-2015 passed by the AO u/s 143(3) of the 1961 Act. 6. 2 Aggrieved by the assessment order dated 02-03-2015 passed by the AO u/s 143(3) , the assessee filed first appeal before learned CIT(A) and contended that the aforesaid income of Rs. 6461/- as was reflected in 26AS i. e. AIR data base did not pertain to the assessee. The learned CIT(A) vide its appellate orders dated 22-12-2015 directed AO to verify the contentions of the assessee as to factual aspect of the matter and grant relief on merits. 6. 3 Now the assessee has filed the CO and raised this ground before the tribunal. At the outset Ld. Counsel for the assessee submitted that issue being small and there was no transaction with the said party , no income of Rs. 6461/- was earned by the assessee and merely because the income is reflec....
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....ry forward and set off of brought forward losses. The assessee has claimed brought forward losses amounting to Rs. 5,32,99,080/- from A. Y 2007-08 to 2011-12 for set off. The AO observed that there was a change in the shareholding pattern in the case of the assessee in AY 2012-13 and the assessee was hit by the provision of Section 79 of the 1961 Act and the brought forward losses are to be disallowed which cannot be set off against current year profits. The assessee was show caused to explain the same and the assessee submitted as under:- "Carry forward and set off of losses wherein a change in shareholding has taken place in a previous year: In view of the decision of the Honourable High Court in case of CIT vs. Concord Industries Ltd. (1979) 119 ITR 458(Madras) and CIT vs Shri Shubhalaxmi Mills ltd. (2001)-119 Taxman 281 (Supreme Court) the section 79 is applicable only for the carry forward of losses (business) and the carry forward of unabsorbed depreciation are not covered by section 79. Therefore the depreciation losses are allowed to be carried forward for set off in future profits irrespective of whether the change in shareholding has taken place or not as on 31. 03. ....
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....idiary company of HDFC Asset Management Company Ltd. . The assessee also submitted certificate from the Company Secretary explaining that the assessee is a Public Limited Company in view of provision of Section 3(1)(iv)(c) of the Companies Act 1956. The assessee also relied upon the decision of the Hon‟ble Supreme Court in the case of CIT v. Shri Subhulaxmi Mills Ltd. (2001) 249 ITR 795(SC). 7. 4 The learned CIT-A called for the remand report from the AO with respect to the change in shareholding pattern of the assessee company during AY 2012-13 as the assessee was denying any change in shareholding pattern during the said period while the AO was contending that there was a change in shareholding pattern during said period. The AO submitted remand report to the learned CIT(A) as under:- "Carry-forward and set-ff of losses:- In respect of carry forward and set off of losses, section 79 says that:- "Notwithstanding anything contained in this chapter, where a change in shareholding has taken place in a previous year in the case of a company, not being a company in which the public are substantially interested no loss incurred in any year prior to the previous yea....
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....pany in which public are substantially interested being a subsidiary of listed company-HDFC Ltd. The learned CIT(A) observed in view of above facts , the assessee has contended that provisions of Section 79 are not applicable in the case of the assessee. The assessee also relied upon provision of Section 2(18) of the 1961 Act and provisions of Section 2(71) of the Companies Act,1956. It is pertinent to mention here that the impugned assessment year under consideration before the tribunal is assessment year 2012-13 and Companies Act, 2013 has no application for the financial year 2011-12 and the erstwhile Companies Act ,1956 will continue to apply for financial year 2011-12 and relevant provisions of the Companies Act, 1956 are Section 2(35), 2(37) and Section 3 and 4 of the Companies Act 1956. The assessee also submitted that CBDT instruction no. 676 dated 05. 04. 1964 will be applicable wherein in the case of the company in which equity share to the extent of not less than 50%(40% in the case of industrial company) is held by the another company in which public are substantially interested or by 100% subsidiary of such company will be regarded as a company in which public are subs....
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....ontent/body of the appellate order of learned CIT(A) is that the learned CIT(A) allowed the business loss from AY 2007-08 to AY 2011-12 onwards although in the conclusion the learned CIT(A) only allowed business loss and unabsorbed depreciation for AY 2012-13 to be carried forward aggregating to Rs. 6,41,93,826/-for the impugned assessment year 2012-13 which has caused prejudice to the Revenue as in the opinion of Revenue unabsorbed losses from AY 2007-08 to 2009-10 cannot be allowed as there is a change in shareholding of the assessee company which has infringed provisions of Section 79 of the 1961 Act, while the assessee is now aggrieved by non allowability of unabsorbed depreciation of earlier years to be carried forward and set off as well has raised new ground for the first time that business losses from AY 2007-08 to 2009-10 and also brought forward losses for AY 2010-11 be also allowed to be carried forward which is a matter of the CO filed before us. In nutshell the whole controversy revolves around the allowability of brought forward losses and unabsorbed depreciation of the earlier years as well current year in the midst of bar created by Section 79 in the cases where the....
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....ious year 2009-10 relevant to AY 2010-11. Thus the shareholding of these two shareholders namely Mr Ajay Bohora and Mr Anil Bohora got diluted from 100% to 74. 36% while HDFC Limited held 25. 64% during AY 2010-11. It was further submitted that in A. Y 2011-12 , there was fresh allotment by way of issue of new shares by the assessee company in favour of HDFC Ltd. and no fresh shares were allotted to Mr Ajay Bohora and Mr Anil Bohora, wherein the shareholding of HDFC Ltd. increased to 62. 28% while the shareholding of Mr Ajay Bohora and Mr Anil Bohora came down to 18. 86% each aggregating to 37. 72% . Thus , in AY 2011-12 HDFC Limited became majority shareholder holding 62. 28% and hence its shareholding increased beyond 51% and consequently bar created by provisions of Section 79 of the 1961 Act will come into play. it is submitted by learned counsel for the assessee that there was no change in the shareholding of the assessee company in A. Y 2012-13. It was submitted that in the return of income filed by the assessee, there was an unabsorbed depreciation of the earlier years which is to be allowed from AY 2007-08 to 2011-12 to be carry forward to subsequent years as in any case pr....
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....174 ITR 160(SC). It was submitted that in return of income , no losses were claimed for AY 2007-08 to 2009-10 and additional grounds are raised before ITAT for the first time for allowability of the said losses by filing CO. It was also a proposition raised by learned counsel for the assessee that if at the end of the relevant previous year under consideration more than 50% shares are held by the company in which public are substantially interested, then in that scenario it will not be relevant to see shareholding as at the end of the previous year in which losses took place . On being asked by the Bench at this point as to whether there is any authoritative pronouncement to that effect by any Court‟s , It was submitted by learned counsel for the assessee that there are no decisions of any Court available on this proposition. It was submitted by learned counsel for the assessee that in AY 2010-11, same set of shareholders held more than 50% share as they were there in AY 2012-13 . It was submitted that Mr Ajay Bohra, Mr Anil Bohora and HDFC Ltd. jointly held 100% share both in AY 2010-11 and AY 2011-12. 7. 11 The Ld. DR at this point pointed out that contentions of th....
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....sessee company exceeded fifty percent in previous year 2010-11 relevant to AY 2011-12 . There was no change in the shareholding pattern of the assessee company in previous year 2011-12 (AY 2012-13). The AO did not allow carry forward of business losses as well unabsorbed depreciation till AY 2012-13 on the allegation that the assessee company is hit by bar created by provisions of Section 79 of the 1961 Act owning to the aforesaid change in shareholding pattern and consequently voting power of the shareholders. While learned CIT(A) allowed business losses and unabsorbed depreciation for AY 2012-13 to be carried forward to the subsequent years for set off , while rest of the business losses and unabsorbed depreciation of the preceding years stood disallowed by learned CIT(A) . 7. 13 Before proceedings further, it will be extremely useful and relevant to reproduce Section 79 of the 1961 Act. The said Section 79 was amended by Finance Act,1988 wherein clause (b) to Section 79 stood deleted w. e. f. 01-04-1989 . The amended provisions of Section 79 as was applicable during the year under consideration is reproduced hereunder:- "Carry forward and set off of losses in the case ....
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....hile there is no mention of unabsorbed depreciation in Section 79. Provisions of Section 72A deals with provisions relating to carry forward and set off of accumulated loss and unabsorbed depreciation allowance in amalgamation or demerger etc while Section 79 of the 1961 Act deals with provisions for carry forward and set off of losses in case of certain companies in which public are not substantially interested and there has been a change in shareholding carrying not less than fifty-one percent of the shareholding. Taxing statute are to be construed strictly and when the language used in taxing statute is clear, plain ,simple and unambiguous , it is impermissible to insert or delete words into taxing statute which are not mentioned therein by the legislature. The taxing statute are to be strictly construed as per the language used by legislatures if the words used are simple , clear , plain and unambiguous provided the results produced by their use are not absurd , albeit the result produced may be harsh. No words are to be ordinarily added or deleted from the statute as there are no surplusages in the words used by legislature in enacting statute and each words so used by legisla....
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....t otherwise requires,- ***** ***** [(17) "company" means- (i) any Indian company, or (ii) any body corporate incorporated by or under the laws of a country outside India, or (iii)any institution, association or body which is or was assessable or was assessed as a company for any assessment year under the Indian Income-tax Act, 1922 (11 of 1922), or which is or was assessable or was assessed under this Act as a company for any assessment year commencing on or before the 1st day of April, 1970, or (iv)any institution, association or body, whether incorporated or not and whether Indian or non-Indian, which is declared by general or special order of the Board to be a company : Provided that such institution, association or body shall be deemed to be a company only for such assessment year or assessment years (whether commencing before the 1st day of April, 1971, or on or after that date) as may be specified in the declaration ;] (18) "company in which the public are substantially interested"-a company is said to be a company in which the public are substantially interested- [(a) if it is a company owned by the Government or the Reserve Bank of India or in ....
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....red unconditionally by, and were throughout the relevant previous year beneficially held by- (a) the Government, or (b) a corporation established by a Central, State or Provincial Act, or (c) any company to which this clause applies or any subsidiary company of such company [if the whole of the share capital of such subsidiary company has been held by the parent company or by its nominees throughout the previous year. ] Explanation. -In its application to an Indian company whose business consists mainly in the construction of ships or in the manufacture or processing of goods or in mining or in the generation or distribution of electricity or any other form of power, item (B) shall have effect as if for the words "not less than fifty per cent", the words "not less than forty per cent" had been substituted ;]]" "Carry forward and set off of losses in the case of certain companies. 79. Notwithstanding anything contained in this Chapter, where a change in shareholding has taken place in a previous year in the case of a company, not being a company in which the public are substantially interested, no loss incurred in any year prior to the previous year sha....
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....f company, existing company, Private company and public company.- (1) In this Act, unless the context otherwise requires, the expressions "company", "existing company", "private company" and "public company", shall, subject to the provisions of sub-section (2), have the meanings specified below :- (i) "company" means a company formed and registered under this Act or an existing company as defined in clause (ii): (ii) "existing company" means a company formed and registered under any of the previous companies laws specified below:- (a) any Act or Acts relating to companies in force before the Indian Companies Act, 1866 (10 of 1866) and repealed by that Act; (b) the Indian Companies Act, 1866 (1006 1966); (c) the Indian Companies Act, 1882 ( 6 of 1882); (d) the Indian Companies Act, 1913 (7 of 1913); (e) the Registration of Transferred Companies Ordinance, 1942 (54 of 1942); and (f) any law corresponding to any of the Act or the Ordinance aforesaid and in force in the merged territories or in a Part B Sate, or any part thereof, before the extension thereto of the Indian Companies Act, 1913( 7 of 1913); (iii) "private company" means a company which, by its article....
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...., but only if, that other company by the exercise of some power exercisable by it at its discretion without the consent or concurrence of any other person, can appoint or remove the holders of all or a majority of the directorships; but for the purposes of this provision that other company shall be deemed to have power to appoint to a directorship with respect to which any of the following conditions is satisfied, that is to say - (a) that a person cannot be appointed thereto without the exercise in his favour by that other company of such power as aforesaid; (b) that a person's appointment thereto follows necessarily from his appointment as director, managing agent, secretaries and treasurers, or manager of, or to any other office or employment in, that other company; or (c) that the directorship is held by that other company itself or by a subsidiary of it. (3) In determining whether one company is a subsidiary of another- (a) any shares held or power exercisable by that other company in a fiduciary capacity shall be treated as not held or exercisable by it; (b) subject to the provisions of clauses (c) and (d), any shares held or power exercisable- (i) by any pe....
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....ntage is reduced below twenty-five per cent of the paid-up share capital of the private company, become by virtue of this section a public company : Provided that even after the private company has so become a public company, its articles of association may include provisions relating to the matters specified in clause (iii) of sub-section (1) of section 3 and the number of its members may be, or may at any time be reduced, below seven : Provided further that in computing the aforesaid percentage, account shall not be taken of any share in the private company held by a banking company if, but only if, the following conditions are satisfied in respect of such share, namely : (a) that the share- (i) forms part of the subject matter of a trust, (ii) has not been set apart for the benefit of any body corporate, and (iii) is held by the banking company either as a trustee of that trust or in its own name on behalf of a trustee of that trust ; or (b) that the share- (i) forms part of the estate of a deceased person, (ii) has not been bequeathed by the deceased person by his will to any body corporate, and (iii) is held by the banking company either as an executor or a....
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....ied in clause (iii) of sub-section (1) of section 3 and the number of its members may be, or may at any time be reduced, below seven. [(1C) Where, after the commencement of the Companies (Amendment) Act, 1988, a private company accepts, after an invitation is made by an advertisement, or renews, deposits from the public other than its members, directors or their relatives, such private company shall, on and from the date on which such acceptance or renewal, as the case may be, is first made after such commencement, become a public company and thereupon all the provisions of this section shall apply thereto : Provided that even after the private company has so become a public company, its articles of association may include provisions relating to the matters specified in clause (iii) of sub-section (1) of section 3 and the number of its members may be, or may at any time be, reduced below seven.] (2) Within three months from the date on which a private company becomes a public company by virtue of this section, the company shall inform the Registrar that it has become a public company as aforesaid, and thereupon the Registrar shall delete the word "Private" before the word "Li....
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....ection (1A) or more], [(d) that the private company did not accept or renew deposits from the public.] (9) Every private company, having share capital, shall file with the Registrar along with the annual return a certificate signed by both the signatories of the return, stating that since the date of the annual general meeting with reference to which the last return was submitted, or in the case of a first return, since the date of the incorporation of the private company, it did not hold twenty-five per cent or more of the paid-up share capital of one or more public companies. [(10) Subject to the other provisions of this Act, any reference in this section to accepting, after an invitation is made by an advertisement, or renewing deposits from the public shall be construed as including a reference to accepting, after an invitation is made by an advertisement, or renewing deposits from any section of the public and the provisions of section 67 shall, so far as may be, apply, as if the reference to invitation to the public to subscribe for shares or debentures occurring in that section, includes a reference to invitation from the public for acceptance of deposits.] [(11) Not....
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....ssessee company increased to 62.28% while the shareholding of Mr Ajay Bohora and Mr Anil Bohora came down to 18.86% each aggregating to 37.72%. Thus, the assessee company became subsidiary company of HDFC Ltd. in previous year 2010-11 relevant to AY 2011-12 as shareholding of HDFC Limited in assessee company exceeded fifty percent in previous year 2010-11 relevant to AY 2011-12 by virtue of Section 4(1)(b) of the 1956 Act. The HDFC Limited did not held more than 51% shares for the entire previous year 2010-11 relevant to AY 2011-12 as the said increase in shareholding beyond 51% occurred during the previous year 2010-11 relevant to AY 2011-12 and it is only for part of the previous year 2010-11, the HDFC Limited held shares more than fifty one percent. There was no change in the shareholding pattern of the assessee company in F.Y. 2011-12 (AY 2012-13) and HDFC Limited held 62.28% in assessee company for the entire previous year 2011-12 relevant to AY 2012-13. It is also not disputed that for the entire period running from AY 2007-08 to AY 2012-13, the assessee company incurred business losses. The perusal of the relevant provisions of the 1961 Act and the 1956 Act as are reproduced....
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....lly interested, stipulates that no loss incurred in any year prior to the previous year shall be carried forward and set off against the income of the previous year unless on the last day of previous year the shares of the company carrying not less than fifty-one per cent of the voting power were beneficially held by persons who beneficially held shares of the company carrying not less than fifty-one percent of the voting power on the last date of the year or years in which the loss was incurred. There is no difficulty so far as previous year 2009-10 (AY 2010-11) is concerned as HDFC Limited only acquired 25.64% shares in the assessee company and the persons who held more than fifty-one shares in AY 2007-08 to AY 2009-10 namely Mr Anil Bohora and Mr Ajay Bohora continued to hold more than fifty-one percent shares in the assessee company as at the end of the previous year 2009-10(AY 2010-11) as their shareholding fell from 100% to 74.36% as on 31-03-2010. The difficulty arose in the previous year 2010-11(AY 2011-12) when the HDFC Limited were allotted new shares by the assessee company which took its shareholding to 62.28% and thus the persons namely Mr Anil Bohora and Mr Ajay Bohor....